UK borrowing exceeds forecasts as interest costs rise

The UK government borrowed more than expected in October as increased interest payments outweighed higher tax receipts, official figures showed.
Public sector net borrowing excluding public sector banks was £18.8bn – the second-highest October reading on record. Borrowing was £0.2bn less than October 2020’s record and £7.2bn more than a year earlier.

Total public sector borrowing was £18bn – higher than the £17.6bn average analyst forecast.

Central government receipts were £65.bn, a £3.8bn increase from October 2020. Tax revenue increased by £2.6bn to £44.2bn. Spending rose by £1.5bn to £78bn as interest payments on government debt increased by £3.8bn to £5.6bn.

Interest payments rose because rates on index-linked gilts increased in line with inflation, which is at a decade high of 4.2%.

Martin Beck, chief economic adviser to the EY Item Club, said: “The softer-than-expected performance reflected both slower growth in tax receipts and a rise in government spending. The latter was partly a function of higher debt servicing costs, caused by higher inflation.”

Beck said despite the higher than expected borrowing Chancellor Rishi Sunak would probably have more leeway against his fiscal rules because the Officer for Budget Responsibility’s medium-term forecasts are on the gloomy side.